PAYE Modernisation: Points to Consider

With real-time reporting soon to become a reality, there are a number of vital points for employers to consider.

From 1 January 2019, employers will be required to calculate and report their employees’ tax deductions in real-time, leading to a dramatic change in the way employers and employees interact with Revenue.

Changes for employees

Revenue wants to ensure that employees avail of all the allowances they are entitled to in a timely manner and that the correct income tax, pay-related social insurance (PRSI), universal social charge (USC) and local property tax (LPT) charges are being applied.

This change to real-time reporting will ensure that Revenue has the most up-to-date pay and tax deduction information for each pay period instead of waiting for the year-end filing of the P35 return, as happens at present. Employees will have online access via Revenue PAYE Anytime to their payroll information submitted to Revenue for each pay period, which will allow employees to see what pay and tax has been reported to Revenue by their employer.

Within PAYE Anytime, the ‘Jobs and Pension Services’ section allows employees to allocate their tax credits between various employments. This will allow individuals to maximise the benefit of their tax credit entitlements as soon as new employments and social welfare payments begin. This will be beneficial for employees with multiple employments in particular, as they will receive the benefits each pay period rather than waiting until year-end submissions for a review and refund or additional payment, if applicable.

The biggest change affecting employees is the abolishment of P45s and P60s. Revenue will produce an “end-of-year statement” for employees, which will be available on the employee’s PAYE Anytime account. Revenue has communicated with all financial institutions and other relevant bodies to advise them that the end-of-year statement will replace the P60 from 2019 onwards.

Main changes

Here is a summary of the effects of real-time reporting:

  • P30s, P45s, P46s, P60s and end-of-year returns (P35s) will be abolished;
    The current tax deduction card (P2C) will be replaced with a Revenue payroll notification (RPN);
  • Revenue will receive real-time interfaces of taxable Department of Employment Affairs and Social Protection income. Tax credits and rate bands will be adjusted to take account of additional income and an updated RPN will be made available;
  • Employers must notify Revenue at the same time as, or in advance of, any payment to employees by way of a “payroll submission request”. For each employee, the employer must confirm the amount paid; the date of payment; and the amount of tax deductible or repayable. Following month-end, Revenue will issue a monthly statement summarising the payroll submission requests received during the month. An employer return will be submitted by the fourteenth day of the following month, specifying the total PAYE, USC and PRSI deducted from individual employees. The statement from Revenue will be deemed the return unless the employer amends the statement in advance of the deadline. Payment of all amounts due to the Collector General must be made by the twenty-third day of that month, where the employer files and pays via Revenue Online Service (ROS);
  • Any employers who wait until close to the P35 deadline to ‘clean up’ PAYE on payments to employees will become more visible to Revenue under the new regime and will potentially face penalties for non-compliance;
  • If PAYE is not withheld correctly by employers on payments made to employees, the tax will be recouped by Revenue on a grossed-up basis;
  • All data received by Revenue from employers, including corrections and the timing of submissions, will feed into Revenue’s risk analysis systems, which could lead to more Revenue PAYE audits of employers;
  • To help employers prepare for real-time reporting, Revenue is contacting employers who appear – based on an analysis of the 2016 P35 returns – not to have informed Revenue of new employees. We understand that Revenue has issued letters to the ROS inbox of employers in relation to this matter; and
  • We also understand that Revenue is writing to all employers to request a full listing of all current employees. The objective of this project is to clean up Revenue’s record of employee names for every employer.

Revenue is looking for seamless integration of reporting into the payroll process. Figure 1 was issued by Revenue in this regard.

Employer responsibilities

Employers need to be fully aware of their responsibilities and should now review their business processes to ensure that they are in a position to meet the new requirements. 
Many employers currently place too much emphasis on end-of-year reporting with a ‘tidy-up’ exercise completed before processing the P35 year-end return.

Sooner rather than later, employers should consider the following points:

  • Do you currently make year-end adjustments when filing your P35? Consider how you will deal with these in real-time reporting;
  • Assess your payroll software. Do you have access to the Revenue Test System? Your employee list is required by Revenue as part of the data alignment exercise;
  • Communicate the PAYE Modernisation changes to your employees and consider whether they will require assistance or training to access PAYE Anytime; and
  • Review the data that will be visible to Revenue under real-time reporting from January 2019 and take corrective action if necessary.

Will the payment process change?

The payment process for employers will remain the same. The Revenue monthly statement is issued and the amount due will be debited from the employer’s bank account on the 23rd of the following month.

If employers have a direct debit facility in place and pay Revenue the same amount each month, this process will continue. However, the 90% rule can now be tracked by Revenue on a monthly basis in real-time to ensure that the employer’s monthly payment meets the required threshold.

Quarterly and annual remitters will now have a monthly statement issued by Revenue, meaning that they now have to file a monthly return. The payment due date will remain the same, however. This is good news for small- and medium-sized enterprises that rely on this quarterly payment to help with their cash flows.

Compliance checks

Revenue is now calling to employers’ offices to carry out compliance checks. During the visits, Revenue will check the following:

  • Employers’ payroll systems, and the controls and checks that are in place to ensure compliance with PAYE regulations;
  • The operation for all employees of the most up-to-date certificates of tax credits and cut-off points issued by Revenue;
  • The application of correct statutory deductions on payments of emoluments to directors and employees;
  • The availability of an employee register, as required by Regulation 8 of the PAYE regulations, plus notification to Revenue of all new employees;
  • The availability of a valid personal public service number (PPSN) for all employees listed on the company’s payroll; and
  • The operation of an emergency tax system, when required.

Jennifer O'Neill is a Payroll Outsourcing Director at Mazars Ireland.

This article first appeared in the 2018 October issue of Accountancy Ireland.

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